News and Events

Monday, Dec. 2, 2013

The number-one item on CardHub’s holiday wish list was a gift-wrapped package full of expert insight on the outlook for holiday-season spending. We must have been very good this year, because Santa delivered early. And we’re ready to share it all with you.

2013 has been a tumultuous year for many Americans, with sequestration, the government shutdown, and now the uncertainties associated withObamacarecasting a long shadow over the impulse to spend freely.

The National Foundation for Credit Counseling (NFCC) recommends that consumers give themselves the gift of not overspending this season. That may be a gift within reach, as a recent NFCC poll indicates that 86% of respondents intend to either spend less than they did last year on holiday purchases or to spend nothing at all. Only 11% of respondents intend to spend much as they did last year, and a mere 3% reported that their financial positions are strong enough to spend more than last year. It’s worth noting that poll respondents were all visitors to the NFCC website, but signs of malaise can be found elsewhere as well. The Conference Board’s Consumer Confidence Index, for example, dropped over 10% between September and the end of October.

On the other hand, the National Retail Federation (NRF) predicts an uptick in holiday spending. The stock market hit record highs this year, and a strong stock market tends to increase the discretionary spending of the wealthy. While employment and wage levels have not increased much, they haven’t decreased either.

Economic indicators aside, everyone agrees that E-Commerce continues to be on the increase, with so-called Omni-channel retailers enjoying a particular advantage. Those are the retailers that market their wares through multiple venues such as brick-and-mortar stores, online services, mobile devices, and catalogues. Gift cards will continue to play a major role in holiday giving—no surprise there.

If you’ve looked at a calendar lately, however, it might have surprised you to see that this year there are only 26 days between Thanksgiving and Christmas. The two holidays cannot possibly get any closer together, and that’s going to put a squeeze on retailers. Some of the major outlets are responding by making the controversial decision to be open on Thanksgiving Day. Will that provide a new opportunity to bring in eager shoppers, or will it backfire? We’ll find out soon enough.

One thing’s for sure: in the coming weeks, we’ll all be hearing jingle bells. But is that sound more likely to be coming from cash registers ringing up millions of purchases or from the loose change that people refuse to spend? There’s no clear consensus on that yet, but our experts have some very interesting observations to share.

Akshay R. Rao, Professor of Marketing, General Mills Chair in Marketing, University of Minnesota, Carlson School of Management

David Strutton, Professor of Marketing & Logistics, Director, New Product Development Scholars Program, University of North Texas

Dale Achabal, Santa Clara University

What is your forecast for the 2013 holiday shopping season? What trends should we be on the lookout for, and how will this year differ from years past?

“Expect sales overall to be up slightly, with significant growth continuing in online retail as consumers continue to find the convenience and savings (prices) attractive.

Strength of the Omni-channel efforts of traditional B&M [brick and mortar] retailers will help them mitigate the efforts of pure-plays who don’t offer consumers the chance to look at and feel the product. Store-based retailers don’t need to be the lowest price (for most purchases), they just need to be in an “acceptable zone” and offer service and immediate availability. Big ticket items will continue to be impacted by show-rooming if retailers don’t differentiate themselves through product knowledge, service, targeted assortments, etc.”

To what extent will the government shutdown affect consumer buying habits this holiday season?

“I don’t think the shutdown will have a major impact on buying for the general population now that a short-term resolution has been developed to carry us into 2014. Those most impacted (government employees furloughed in the 2013 shutdown) will be cautious and put aside a little “rainy day” money in case Congress continues to fight like spoiled children.”

Which retailers stand to be the biggest winners and losers this holiday season?

“Winners will be those companies that are truly Omni-channel, giving consumers choices in purchasing via stores, web, catalog, and mobile in a seamless manner. This would range from Nordstrom to WalMart. Also, some “pure plays” like Amazon with their ‘endless aisle’ assortments and rapid fulfillment.”

Will gift cards continue to be the most popular type of present?

“Gift cards are with us to stay as they make it easier for the gifters and are well accepted by the receivers. I don’t see a continued surge (in growth) as consumers place more emphasis on personalizing their holiday gifts vs. just spending money and ‘getting it over with.’”

What is the outlook for holiday travel this year?

“It appears that demand is up, along with prices of tickets, as airlines continue to restrict capacity.”

Robert Blattberg, Northwestern University

To what extend will retailers need to adjust their marketing pitches and expectations for the holiday sale in the light of the government shutdown and lingering economic concerns?

“I think the bigger issue is actually Obamacare. The shutdown was too early…it might have a very small effect. But the people are back working, they’re getting paid, and they got back-paid. I think it would be a major distraction for the economy if it’d gone on but in terms of the holiday season, I think it’s a minor distraction.”

You mentioned Obamacare. How do you think that will play into things?

“Well, I think it’s the uncertainty that people have about what’s going to happen to their healthcare, what’s going to happen to the cost of their healthcare and so on. And so when consumers are…highly uncertain about their economic prospects and concerned about risk, it can affect their willingness to spend. So, you know, I don’t know what the data are, how many people are really affected, but I think there’s a lot of fear out there about what Obamacare is going to mean. “Am I going to lose my insurance?” “Are my premiums going to go up?” “I can’t sign up” etc. And it’s all going to happen over the holiday season and so it could be disruptive. It’s hard to know because nobody really knows what’s going to happen.”

How do you think the shopping season this year will compare to previous years? Are there mainly any particular trends that are unique to this year?

“I did an analysis a number of years ago and I was able to show that how the stock market did affected holiday spending. And the stock market has done phenomenally well this year. Obviously there are some headwinds in the economy and so on but the richer segment, they’re feeling significantly because of the 20 – roughly 25% increase on the stock market. So actually I think this is going to be a better year. On the high end, it’s going to be what the stock market does, and with the lower-income groups it’s going to be issues associated with what’s going to happen with respect to their…what I call cash flow. Things like our oil prices are high, so the gasoline is expensive. So I think that in spite of all the negative discussions about what’s going on with the consumer, things are actually better than they were last year.

Unemployment is coming down a little. That’s a deceptive statistic because it’s really how many people are employed, not how many people are unemployed and that number isn’t really increasing very much but it’s not declining. Government debt is coming down.

There was a big drop in government employment last year at a state and local level. That’s changing and it’s starting to come back. So things are actually, in spite of everything, better than they were last year.”

How does that jibe with the kind of reports and surveys on holiday shoppers that said they’ll be spending less on average this year?

“Well, people say that. The question’s going to be what they do, and I always like to think about what is the cash that they have in their pocket? The question is, “Do they have more cash this year than they did the last?” The answer is on the high end definitely yes. On the low end, you know, that’s where Obamacare could really have an impact. But if Obamacare doesn’t have an impact, people are about as well-off this year as they were last year in the lower and middle income groups. So people may be saying that, but the data expects that things are a little better. I’m not saying it’s a boom year but I don’t think it’s as dire as some people have been saying.”

An increasingly important issue is the trade offer on consumers based on shopping in brick and mortar stores versus online. How big of a showroom effect will there be this holiday season and which particular retailers would be most susceptible to that?

“Well I think everybody always uses electronics retailers as the most susceptible to that effect. You go into Best Buy and find out that you want to buy a 48 inch flat screen TV. It’s a Samsung or a Sony or whatever the brand name is. You then go online, search for the lower price, and all of a sudden you’re buying it online.

So I think that’s where the goods are easily purchased once you know the model numbers. That’s where the showroom effect is significant. So electronics, photography, all those types of products are more easily shopped online after you’ve seen the products in the showroom. But I think the general trend is more and more online shopping. For two reasons: One is convenience and secondly…if you know what you want, you can get the inventory that you want and they’ll tell you right on the spot is it available or not. So when you go to a store and you’re buying a gift, you may not be buying what you want and so online is a lot more efficient for consumers. And you know all the trends are that online is growing at a much faster rate than brick and mortar obviously and brick and mortar may be depending upon the category decline. So you know, I would say that in the Christmas season online is just going to continue to grow and you know, whether you want to call it a showroom effect or an efficiency effect, it’s here to stay and so it’ll obviously have an effect on brick and mortar retailers.”

What are the best practices in terms of turning increased holiday traffic into year-round sales increases?

“One efficient way to do it are things like gift cards. And so the advantage of a gift card is that you can get people into the store after the season ends. Now of course most gift cards January is the month that they’re redeemed so that then at least it increases the number of visits that you get. In terms of really translating the Christmas traffic into long-term purchasing behavior, it depends upon how novel your idea is and how sophisticated your use of database marketing is. But even with sophisticated users of database marketing there’s a limit. You know, there’s so much competition at the retail level that there are a few exceptions. But in general it’s tough to convert the Christmas traffic into real loyalty because consumers are out looking for better prices. Obviously people like Amazon are providing very good service, good prices and so they’re likely to keep consumers. But if I go to a typical department store, everybody is selling the same products. So uniqueness is really important. And so to the extent you can find retailers that have unique offerings. They may be able to translate that into loyalty but there aren’t very many of those.”

What effect will there be from stores pushing up their Black Friday hours?

“I think what they know is that it’s the busiest day of the year and the more people they can get in the store during that day, the better off they are. Plus consumers want to shop earlier and earlier. I mean some people want to go at 1:00 in the morning. The only issue with that is, is there a dip after a Black Friday, you know, the day after Thanksgiving, what happens in terms of the sales in the next week or two weeks? So, to the extent that it’s incremental sales, it’s advantageous. If it’s not incremental—and I don’t know the answer as to whether it will be incremental—to the extent that it’s not incremental, then you just increased your cost. But everybody’s trying to be out there early because the competition is going to be out there early. And so if the consumers are going to be in my competitor’s stores, I’d better be open. So there’s a name for this, it’s called theprisoner’s dilemma. I won’t go through it but the idea is that if I don’t do it and my competitors do, I lose. If I do it and they don’t do it, I win. And if we both do it, we’re worse off. But that’s what’s happening. And they’re probably both a little worse off because their costs have gone up”

Is there any risk of alienating consumers by pressuring them be out shopping on Thanksgiving afternoon or evening when the sales start?

“I’m not sure. It depends upon how long the sales and the offers are. I think that the reason the stores want to do it is that a lot of people have Thanksgiving say at lunchtime. Or they want to go shopping before, and then they go and have Thanksgiving dinner. So it’s a day when people aren’t working. What’s really happening in retail is that it’s all about convenient hours and when consumers want to shop. So if consumers want to shop on Thanksgiving, you know, I’m not going to shop on Thanksgiving but it doesn’t alienate me. Now I don’t want to over-generalize from myself but you know, all they’re doing is giving greater convenience to the consumers and I don’t think that’s a negative.”

Christopher Groening, Kent State University

To what extent will retailers need to adjust their marketing pitches and expectations for holiday sales in light of the government shutdown and lingering economic concerns?

“I don’t see any effect. All government workers were paid in full and the disruption occurred before the holiday shopping season got underway. Moreover the workers were told they would be paid in full one day after the shutdown began.”

How will holiday marketing efforts in 2013 differ from those in 2012? Will there be any new themes, tools, technological advances, etc.?

“I suspect the stories will be much the same as last year. Increases in online purchasing, faster online delivery times (see Amazon on Sunday delivery). Stores trying to combat show-rooming. Giant discounts. Stories about underemployed people not purchasing as much as they’d like for the holidays interspersed with stories about segments able to afford bigger purchases this year because they did get a job. The economy is a bit less of an issue this year. New gaming consoles are coming out.

One things that may occur is that we may see advertising for apps or online retailers to a much larger extent than in the past. If not this year then next year. Firms are spending a lot on resources to improve the online shopping experience, and apps are launching entire companies.”

How are retailers dealing with the ease with which consumers can compare prices and shop online?

“This issue is a tough one. We discuss this issue in my class every semester. Price matching helps and there was a recent WSJ article about Best Buy where they claimed that price matching would solve show-rooming. However, many online places will have some form of free shipping, especially around the holidays. So, why purchase something, wrap it, then mail it to someone when I can just order it online and have it shipped to the recipient for free? Another possible alternative is for stores to carry unique items that cannot be purchase online from a competitor. In my opinion, that sounds great but is very hard to execute. Target carrying a unique version of Taylor Swift’s recent release is probably a good example. People come in the store for that and then purchase other items.”

How can retailers use marketing to turn holiday shoppers into year-round customers?

“Again, this is a tough issue. We’re driven by price to such a great extent. The usual convenience, customer service, and quality items will help to some extent. It is very difficult to compete on price alone so firms must figure out other unique competitive advantages—things to develop a relationship with the customer. Giant Black Friday type sales are not likely to accomplish the goal.”

Kirthi Kalyanam, Santa Clara University

What is your forecast for the 2013 holiday shopping season? What trends should we be on the lookout for, and how will this year differ from years past?

“There are fewer shopping days between Thanksgiving and Christmas this year—26 days, which is the low end of the 26-32 day window. I believe this has some impact. However retailers know this, and should have forecasted this and planned for it.

There is also quite some disparity between forecasts from the National Retail Federation, and other sources. This suggests uncertainty in the environment. I think the government shutdown has a role, but is there is something else going on that we are missing?

E-Commerce is going to have an edge. E-Commerce historically has been able respond to demand signals faster and quicker than multi-channel retailers. They have better analytical capabilities. Amazon has added Sunday delivery with USPS. Google has announced Shopping Express a same day delivery service.”

Amanda Nicholson, Syracuse University

What is your forecast for the 2013 holiday shopping season? What trends should we be on the lookout for, and how will this year differ from years past?

“Cloudy with occasional bursts of sunshine.

Fewer shopping days this year between Thanksgiving and Christmas—a big factor for retailers—dropping from 32 in 2012 to 26 this year.

NRF predicting a 3.9% increase to $602 billion – they are generally the most optimistic forecasters.”

To what extent will the government shutdown affect consumer buying habits this holiday season?

“Some analysts are predicting that consumers will reduce their holiday gift budgets this year by about 2% (NRF), plus slow job growth and small wage gains appear to have made Americans more nervous about charging goods and services to their credit cards.

Borrowing appears to be more focused on urgent needs—the Federal Reserve Bank of New York’s quarterly report (2nd quarter) showed that student loan debt has been the biggest factor in borrowing increases since the end of the great recession.

Statistically measured policy uncertainty has a very weak and very short term relationship with retail spending (ICSC).

The confidence curve measured by household income shows strength at the high end, but remains weak at the low end (ICSC).”

Which retailers stand to be the biggest winners and losers this holiday season?

“Those that offer promotions earlier will be shopped by consumers who are planning to take advantage of prices and promotions. Target, Macy’s, JC Penney, and Kohl’s are all planning to be open Thanksgiving Day. Toys R Us hosted its annual holiday preview in September. K-Mart aired its first holiday ad in early September.

Other winners will be Omni-channel retailers who provide a seamless experience. Browse and buy online, pick up in stores, etc.

Mobile commerce growth is anticipated to be the highest. 2013 figures are estimated to be arou